The Painted Blockchain
Now ten years from the inception of Bitcoins and blockchains into the world, immense confusion around the technology remains. The actual use-cases for the blockchain seem almost as obfuscated as how the blockchain works. In the next few minutes, you’ll learn what blockchain means, gain an intuitive understanding of how it works, the relationship to cryptocurrency, and what other use cases it’s good for.
A blockchain is a database. All databases implement a logical way to store and retrieve information. Most databases use commands to add, remove, and manipulate data, and then those actions are bundled together into a transaction. That transaction is then committed to the database, which makes the operations take effect. Put another way, imagine you’re painting a portrait. First you draw out the shape of the model’s head with pencil. You add lines to measure out where the eyes, nose, and mouth will be relative to each other. Then you add the eyes, nose, and mouth with pencil. All of these additions are part of a “transaction”. To “commit” this “transaction”, you would put the paint down on the canvas, making the changes permanent. The paint dries, and the “data” is in the “database” - until you paint over it.
Blockchains work in a similar way, the big difference is how the transactions are committed. A block is a group of transactions that will get committed together. To commit a new block, each new block is “signed” by the ones before it, in part by using the “signature” of the previous block. This makes a “chain” of signatures: a blockchain. Why this is important is because of the public nature of many blockchains. That is, instead of just a single company handling a database of their internal data, a public blockchain is designed specifically for any group of people to access and add to it. This is what makes blockchains useful for cryptocurrency. The database, as a series of monetary transactions held in blocks, keeps track of everyone’s money in a way that makes it easy to see past transactions without being easily tampered with. All that’s left is to understand the process blockchains use to commit blocks.
Bitcoin’s blockchain - and many others - use the proof-of-work model to approve blocks. To think about proof-of-work, imagine again painting a portrait. Except this time, you’re not the only painter. There are now hundreds, or thousands, or even millions of other painters in the room with you! For the sake of keeping the metaphor simple, assume everyone agrees that the next part of the portrait to paint is the eyes. The eyes are drawn by a painter in pencil, representing a transaction. Except this time, any other painter in the room might be the one to actually paint the eyes. How they get the honor is by solving the puzzle: what color should the eyes be? Amazingly, all the painters already know what color the eyes should be - there’s now a magic second canvas next to the portrait. The magic canvas’s top half changes color to the exact shade the next part will be painted while the bottom half remains blank. The challenge the painters face is mixing their paints to get the exact shade. When they believe they have the right shade, they verify it by painting a line in the blank bottom half of the magic canvas. If it is indeed the correct shade, the whole canvas changes to the correct color, and the painter has the honor of painting. In this case the eyes are painted the color the canvas said. The “transaction” is complete, the “block” has been added, the magic canvas changes color. To get an intuitive idea of the “signature” of the block with this metaphor, you can imagine that to make each new shade the magic canvas displays, one of the colors that must be mixed is the previous magic canvas shade - to be nice, assume that once the magic shade has been discovered, it’s added to all the painters’ pallets (this way, the painter that solved the last puzzle doesn’t get a head start on the next one). With each new shade relying on the ones before it, then anyone can trace the exact order the parts of the portrait were painted in, meaning everyone can verify that the order and transactions are correct.
In a monetary ecosystem, honor is not enough of a prize, so the reward for completing the proof-of-work puzzle is a payout of the cryptocurrency. The puzzle is a math problem solved by computers, which is hard to for them to figure out but very easy for anyone to verify. This is what makes blockchains so useful to cryptocurrency: any given user should not have to trust any other user. The trust is in the system. The people sending money to each other don’t even have to be the same people approving blocks - the painters tracing out the next part of the portrait in pencil don’t ever have to mix colors to try to paint it!
How blockchains move trust from a central authority like a bank, company, or individual to the system itself is beautifully innovative, but imperfect. One of the most famous issues is in the proof-of-work model, called the 51% attack. Imagine that 51% of the painters in the room all work for the same company, or the same government. Statistically, those colluding painters will do the most painting - or commit the most blocks - assuming all the painters are equally likely to solve the puzzle first. This translates to 51% of the computing power being controlled by a single entity or a colluding group, undermining the decentralized nature of the public blockchain and thus undermining trust. Even with other proof models, there is still an issue of who is responsible for hosting the blockchain: is it a non-profit, a company, a government, or totally distributed? And with the question of who owns the blockchain comes the question: do you trust them?